Executive Summary

For the record, some of you may have heard by the time you get this version of Furniture Insights®, but I will be retiring from Smith Leonard, effective December 31, which also means that after 30-plus years of publishing this newsletter, this will be my last episode of Furniture Insights®. It has been a real pleasure to get to know so many of you over the years, both in person at meetings, events,  and markets, as well as through this correspondence. We, at Smith Leonard, have been very blessed to count so many of you as clients, as well as those who are not clients, also as friends. However, the team here at Smith Leonard with its countless combined years of furniture industry experience will continue to carry the torch led by Mark Laferriere, who will be taking my position as the leader of our furniture practice, handling all of our stats for this letter, as well as the annual operating statistics that we compile along with other industry data. So, with that said, it’s been a real pleasure to be allowed to be involved in this great industry. Thanks so much to all of you who have provided me with your information and tidbits to help the news that we provide to be a bit more meaningful.

Now to the summary of this month’s results. As we have seen for the last year or two, the monthly results have to have some explanatory comments. New orders, according to our survey, were up 12% in October versus October 2022 but the October 2022 orders were down 30% from October 2021 and were even down in the 2021 to 2020 comparison, as 2020 orders were up 40% over October 2019. As we discuss later in the results below, there are so many factors that go into the results, it is difficult to explain them all. Hopefully, the information allows participants to have some feeling for how your results stack up against the industry and why there are differences for your business.

For outsiders, it is just difficult to understand the fluctuations in the past four years. Year to date through October, new orders were up 2%, after a 29% drop the year before.

Backlogs actually increased a bit over August but were down 43% from September 2022. It appears that backlogs are getting to something closer to pre-pandemic levels if one can determine how much price increases are included in the numbers.
The other stats are at least somewhat in line with expectations as you can see from the full report.

Shipments were down 13% from October a year ago and down 18% from the 2022 year-to-date results. As expected, the majority of the participants followed along with the overall results. Shipments in late 2020 and 2021 were bolstered by the huge backlogs that were built in late 2020 and into 2021 but shipments were not always smooth as it related to volumes of shipments, and especially with imported goods, supply chain issues caused havoc for many. So, the consistency of shipments has not been what one would have expected with such huge backlogs.

Receivable levels seem to be in line and with a few exceptions, there have not been major losses through retail failures. While there are some concerns out there, most of the major retailers seem to be in pretty good shape.

Inventory levels have come down to be more in line with current business conditions. While there are spots of shortages of employees, most of the employment needs have leveled off, except for certain needs in some skilled positions. The declines in overall positions have seemingly been handled through attrition for the most part.

National

Consumer Confidence

The Conference Board Consumer Confidence Index® increased in December to 110.7, up from 101.0 in November. The Present Situation Index rose to 148.5 from 136.5 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—improved to 85.6 in December, up from 77.4 in November.

“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, Chief Economist at The Conference Board. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months fell in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024.”

When asked to assess their current family financial conditions, the proportion reporting “good” ticked down while those saying “bad” rose slightly. The report noted that “this suggests consumers’ view of their current finances may paint a more tempered picture than the perception that overall conditions are better than a month ago.”

Housing

Existing-home sales grew in November, breaking a streak of five consecutive monthly declines. Among the four major U.S. regions, sales climbed in the Midwest and South but fell in the Northeast and West. All four regions continued to experience year-over-year sales decreases.

Total existing-home sales increased 0.8% from October to a seasonally adjusted annual rate of 3.82 million in November. Year-over-year, sales fell 7.3%.

Single-family home sales increased 0.9% from 3.38 million in October but were down 7.3% from the prior year. The median existing single-family home price was $392,100 in November, up 3.5% from November 2022.

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.95% as of December 14, falling below 7% for the first time since August. That’s down from 7.03% the previous week but up from 6.31% one year ago.

Sales of new single‐family houses in November 2023 were 12.2% below the revised October rate of 672,000 but were 1.4% above November 2022. Compared to November 2022, sales were up 13.8% in the Northeast, 52.2% in the Midwest, and 7.9% in the West with sales down 8.4% in the South.

Other

Real gross domestic product (GDP) increased at an annual rate of 4.9% in the third quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1%.

Advance estimates of U.S. retail and food services sales for November 2023 were up 0.3% from the previous month, and up 4.1% above November 2022. Total sales for the September 2023 through November 2023 period were up 3.4% from the same period a year ago.

Sales at furniture and home furnishings stores in November were down 4.3% from November 2022 and down 5.5% year to date.
The Consumer Price Index for All Urban Consumers increased 0.1% in November on a seasonally adjusted basis, after being unchanged in October. Over the last 12 months, the all-items index increased 3.1% before seasonal adjustment. The index for shelter continued to rise in November, offsetting a decline in the gasoline index.

The leading economic indicators report noted, “Despite the economy’s ongoing resilience—as revealed by the US CEI—and December’s improvement in consumer confidence, the US LEI suggests a downshift of economic activity ahead.”

Thoughts

Several of the economic reports appear to be a bit mixed in terms of expectations for 2024. As we have said many times before, the individual factors that make up the economy as a whole do not always move at the same pace. The same goes for the furniture industry, even when just looking at residential furniture. So, while some expectations for certain parts of the industry have struggled, others have held up fairly well in spite of the slower economy in general.

We continue to believe that planning for 2024 should remain a bit on the conservative side. The Conference Board still suggests a short and shallow recession in the first half of 2024. We believe that maybe residential furniture may already be there. With 2024 being an election year, much of the normal advertising will be taken over by political ads. We know that advertising does create consumer desire for new furniture so even if the economy does not go to a “light recession”, we would not expect a robust recovery for the residential furniture industry. But we do believe that 2024 does give us a chance to create a new base level of business for future comparisons as price increases, due to abnormal fluctuations in freight, as well as other material and labor fluctuations, should become more like the normal changes to prices.

So, while planning conservatively, we would think that maybe the industry can start to plan for more normal fluctuations in their expectations for business.

Thanks again to all of you who have been so helpful to us and particularly to me. We appreciate your trust in sharing confidential information for us to share on a consolidated basis, as well as other comments, that you have allowed us to share without attribution. I hope to be able to see many of you in the next few markets, just to stay in touch. If I can ever be of any help to any of you, please feel free to reach out. In the meantime, please continue to respond and support Mark in the Firm’s efforts, when he reaches out.

New Orders

According to our latest survey of residential furniture manufacturers and distributors, new orders rose 12% in October 2023 compared to October 2022. As has been the case for the last couple of years, the results continue to require some background. October 2022 orders were down 30% from October 2021 and October 2021 orders were down 18% from October 2020. But October 2020 orders were up 40% over October 2019. Now factor in the effects of the Covid pandemic, up to 30% and more price increases due to material price and freight cost increases, increases in labor costs, and other issues, and you could come up with probably something similar to some of the hash casseroles served at Holiday meals. Oh, and do not forget the fact that ocean freight increased over five or more times in some cases and then dropped back to more normal rates in the past year or so. But hopefully, these comparisons will allow you to make some sense of your own results.

Some 62% of the participants reported increased orders in October compared to October a year ago.

Year to date, new orders were up 2% over the same period of 2022. Year-to-date orders for 2022 were down 29% over the same period of 2021 when orders were up 17% over the same period of 2020, again affected by a couple of months’ shutdown in early 2020.

Shipments and Backlogs

Shipments in October 2023 were down 13% from October 2022. October 2022 shipments were up 2% over October 2021. Shipments in 2023 were down for 69% of the participants compared to October 2022. Year to date, shipments were down 18% over the first 10 months of 2022. Year-to-date shipments in 2022 were up 7% over 2021 shipments. So while new order comparisons were difficult, shipments were as well, as backlogs were built so much during 2020 and 2021. Shipments were also affected by major ocean freight issues.

Backlogs fell 5% from September and were down 43% from 2022 levels. Our survey results have been affected by several participants adjusting their backlog levels, since backlogs are not tracked in general ledgers, so over time, as orders were cancelled and other issues came up, several have had to restate their backlog numbers.

Receivables and Inventories

Receivable levels were up 4% from September, somewhat in line with the 2% increase in shipments. Receivable levels were down 22% from October 2022, again somewhat in line with the year-to-date 18% decline in shipments.

Inventories fell 1% from September and were down 31% from October 2022, the same decline as reported last month. We hope that most have, by now, rebalanced their inventories to levels that really seem to make sense for current business conditions.

Factory and Warehouse Employees and Payroll

The number of factory and warehouse employees was down 7% from October a year ago but actually up 1% from September. It appears that most of the people we talk with feel that the employee situation has become more manageable although there continues to be issues with finding the skills that many manufacturing companies continue to need.

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